Developing Generation Construction Plans for the Potomac Electric Power Company: Management Science in Utility Regulation

Abstract

To assist the Public Service Commission of the District of Columbia in overseeing the construction plans of the Potomac Electric Power Company, Resource Planning Associates, Inc. (on behalf of the Commission staff) independently developed long-term capital expansion plans for the utility. Such decisions in this extremely capital-intensive industry have effects for up to 50 years and involve billions of dollars in initial expenditures and several times more in future retail rates. In a publicly scrutinized, trial-like, adversary situation, in spite of the inherent uncertainties in and the complexities of the issues being addressed, our analysis showed how substantial savings could be achieved (as much as 15 billion dollars depending upon the future values of uncertain and uncontrollable variables), and convinced the Commission that their action was necessary. To do this we used state-of-the-art methods for generation planning and a new framework for strategic planning under uncertainty.